25 Nov 2018

What is a ‘Golden Hello’

A golden hello is a signing bonus, offered to executive-level employees, as an inducement to join from a rival company. The payment typically comes in the form of lump-sum cash payment upon an employee entering the firm. Alternately, the amount may be through installments over a specified timeframe. Either way, the sum is an award
for services to be rendered.

BREAKING DOWN ‘Golden Hello’

Depending on the industry and the size of the company, a golden hello may run into the millions of dollars. This signing premium is a calculated risk by the hiring company, as it hopes that the value and knowledge of the executive coming onboard will exceed the cost of the bonus.

Before the financial crisis of 2008-2009, the prevalence and size of golden hellos reflected a robust job market and served as a way to distinguish one employer from another in competitive industries. Specific sectors utilized golden hellos more than others. In particular, technology, finance, and companies providing consulting services were among those that deployed this recruiting technique to lure high-level executives away from their competition.

However, following the financial crisis, executive pay packages became scrutinized more intently. Also, shareholder support and public acceptance of such forms of payment have come under fire. Corporate boards today are much more conscious of their bottom lines and the impression these big-dollar compensation packages convey, both internally and externally.

Tax Implications of Receiving a Golden Hello

The assessment of taxes is at the time of receipt and based on the amount received. For the American market, the Internal Revenue Service (IRS) requires employers to tax the sum as supplemental wages as described on IRS Form 1036. For golden hello payments under 1 million dollars, this tax rate could be as high as 22% of the total bonus. The IRS does allow the employer some flexibility, and the employee may see some savings when reporting the amount with regular wages. In the United Kingdom, if a payment is made to an employee before they begin work, the tax must be deducted using a basic rate (BR) tax code.

How Investors View Golden Hello Bonuses

Investors use standards such as the environmental, social, and governance criteria  (ESG) for a company’s as they screen potential investments. Investors consider these standards as they review a firm’s ethical impact and sustainable practices.

  • Environmental measures look at how a company performs as a steward of the natural environment.
  • Social models examine how a company manages relationships with its employees, customers and the communities where it operates.
  • Governance including corporate leadership, internal controls, and shareholder rights, considers executive pay as well.

The recognization of company governance as an essential determinant of corporate accountability and performance is now paramount. High levels of executive pay remain the norm, including golden hello payments in certain situations, even in the post-financial crisis atmosphere. Linking ESG to executive employee salary and benefits may help companies remain aligned with their long-term strategy and shareholder interests.

Any lack of alignment with matters concerning executive compensation may be a concern for longer-term investors, giving them a potential risk to consider when determining whether a company meets their investment criteria.

Covid-19 – Johns Hopkins University

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